Tanzania Mining Industry: Revenues, Resentment and Overregulation?

Tuesday, 21 July 2009

Page 2 of 6 Something Must be Done! Tanzania’s President Jakaya Kikwete arrived on a reform platform in 2005 with a promise to “do something” about the mining matter. Kikwete set up the Presidential Mining Review Committee chaired by Justice Mark Bomani in 2007, which produced a several hundred page report last year. The National Assembly began debating the report in October 2008, and has since announced intentions to implement recommendations to restrict value added tax (VAT) exemptions to exploration and prospecting activities only, and abolish fuel levy and petrol excise duty exemptions. These measures, if passed, would be on top of revisions already made in 2007 under which Barrick, AGA and Resolute agreed to pay annual levies of USD200,000 to local authorities. The companies also gave up their 15% tax allowance on unredeemed capital, which means they will start paying income tax sooner, probably within the next few years. Barrick also agreed to a “voluntary” contribution of USD7m a year to the government for five years. The Ministry of Energy and Minerals is expected to present a fully revised Mining Act by the end of the year, which is supposedly almost complete. Bomani also recommended raising the metals royalty rate from 3 to 5%, and that the government should take a 10% stake in all mining operations in the country. These government shares would be managed by the State Mining Corporation (STAMICO), which Bomani has advised the government not to privatise as was previously planned. Needless to say the mining companies have been lobbying hard against tax reforms. The Tanzania Chamber of Minerals and Energy (TCME), an industry body, warned in June 2009: "The timing and manner in which these regressive measures have been instituted is too costly to be borne by any industry or sector." In response to “A Golden Opportunity”, a report released by activists in 2008 that demands a higher tax contribution from mining companies in Tanzania, Barrick made some caustic comments: “The authors’ proposed changes in law to make the Tanzanian investment climate vastly less attractive for new investment could not possibly be any more insensitive to global economic reality. Such changes would only aggravate an already desperate economic picture for new investment in the sector and cast an even larger cloud over the long-term future of the gold mining industry in Tanzania.” Mining companies recently asked parliament to consider postponing reforms until the effects of the global crisis subside, which MPs responded would be a “politically irresponsible” thing to do. Paralytic Politics To complicate matters, the current approach to mining reform by the Tanzanian government can best be described as paralytic. The country is a newcomer to multiparty democracy and still dominated by the ruling CCM party. CCM holds 86% of elected seats in parliament. But unlike other African states with weak oppositions (such as neighboring Uganda), Tanzanian political power is not centralized in the executive. Insiders say Kikwete does not drive economic policy in the country, as CCM influence is spread amongst various cadres that Kikwete merely adjudicates between. Furthermore, the fledgling opposition is working hard to rise, but still lacks (as do many African political parties) a coherent platform and real policy prescriptions. This, along with a feeling that CCM has little time to hear opposition politicians out, has led to some rather randomly obstinate exchanges in parliament. One favourite reported recently in the local press: After accusing the government of ignoring pollution problems at North Mara, UDP MP John Cheyo (one of two opposition representatives on the Bomani Committee) was tossed out of the debating chamber by National Assembly Speaker, Samuel Sitta. The Citizen newspaper writes, “’Problems at the North Mara mine did not start yesterday,’ [Cheyo] pointed out. But before he took his seat, Mr Sitta asked the MP to clarify what he meant as effects from chemicals were felt immediately. But Mr Cheyo answered that he was an expert in chemistry and that was why he had raised the issue. Then Mr Sitta wanted Mr Cheyo to revisit his science notes. The latter said because the Speaker had said so he would end there, though he was not satisfied with the answer. But the Speaker rose and said: ‘I think I need time to speak about this as members from the opposition bench have been forcing things to be done their way.’” The opposition’s refrain is that CCM remains firmly in the pocket of the mining companies. The government’s recent move to renegotiate taxation terms directly with mining companies elicited outrage in parliament even though this is technically required by law, as current tax provisions are guaranteed under individual mining contracts. Others say the government is committed to reforms if for no other reason than an election is coming up next year. If President Kikwete has nothing to show the public by then, there is a good chance that voters will turn on the CCM. Tanzania’s socialist roots are still strong, and the government is largely beholden to the will of the people. Public opinion remains hostile toward mining companies, so any legislation presented that does not increase taxes and offer major reform will be widely rejected, not least by opposition MPs who maintain a massive will to hold things up. At the same time, the government is well aware that the industry needs new investment and that any too punitive measures will drive mining companies away. The Ministry of Energy and Minerals’ Commissioner of Minerals, Dr Peter Kafumu has repeatedly voiced the need to produce measured reforms that will not repel investors. In May 2009, the International Council on Mining and Metals (ICMM) hosted a forum in Dar es Salaam, from which the ICMM reported: “In the minister’s closing speech he assured the workshop that a competitive regime would indeed be sustained by the imminent reforms!” With political pressure coming from so many different directions, and no one powerful executive to make decisions, Tanzania is left with political paralysis. The new Mining Act has been delayed for months, and it is still unclear how the government intends to balance these competing demands. << Start < Prev 1 2 3 4 5 6 Next > End >>